Federal Reserve System Appears on Economic Spotlight

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The end of the fiscal year is approaching and the Federal Reserve System appears to be on the economic spotlight. With various reports on how the U.S. economy is doing, most economists and investors want to know if the Feds are planning to take action and raise interest rates. Some think the central bank will wait until the next fiscal year while others have expressed it is time for the Feds to raise rates on short-term loans.

John Mason of the Seeking Alpha website wrote in a report that Janet Yellen, Chairwoman of the Board of Governors for the Federal Reserve had testified to Congress on the issue. Yellen had expressed that the decision to raise interest rates would depend on the “state of the economy.” Thus far, analysts believe the Federal Reserve will taper off in securities bond purchasing, as had been previously indicated. The next step would be to start raising interest rates, but the question is when?

After a positive job report showing the unemployment rate falling, the concern remains on the vitality of the U.S. economy. A recent report by the Forex website shared a Wells Fargo Research Team perspective on the current state of the economy. According to the report, retail sales had remained unchanged during the month of July which was below “consensus expectations.” Core retail sales were explained as making up most of real Gross Domestic Product (GDP) for consumer spending which only rose a tenth of a percent in July.

Due to the progress currently being reported, analysts believe the Feds will once again “err on the side of caution.” According to the report by Forex, the “liftoff” of the rate hike will most likely remain unchanged, though the president of the St. Louis Federal Bank in Missouri had stated his own preferred date is at the end of the First Quarter of 2015.

The Federal Reserve appears to be on the economic spotlight, especially after conducting a nationwide survey last year. According to a report by The Huffington Post, the Federal Reserve had found that less than 30 percent of Americans who were surveyed had indicated they were “better off” than five years ago. In fact, the majority of those surveyed indicated they were either the same, or worse off.

The Huffington Post reported the Federal Reserve had conducted this “first of its kind” survey on the economy last September to give Washington policymakers an overview of how households spend and save their money. The report appears to indicate that “high levels of student debt” may be holding back the U.S. economy.

Although student debt appears to be a contributing factor among households that may be reducing consumer spending, the survey also found that many Americans are not saving money either. The Huffington Post reported that about half of the participants in the Feds’ survey had stated they were not saving any income, and about one-fifth had indicated they are spending more money than they are making. In fact, 40 percent of those surveyed who were 45 years or older had indicated plans to postpone retirement due to the past recession.

Contra Costa Times reported on a recent interview with John Williams, President of the 12th District bank of the Federal Reserve System which is based in San Francisco, California. Williams oversees the “largest economic unit” in the U.S. with nine western states and about 21 percent of the national population.

In the interview, Williams had expressed concern over outlying regions located next to the Bay Area. Other parts of California were hit hard from the housing crisis whereas San Francisco was experiencing strong economic growth, including demand for commercial real estate and low unemployment.

Williams expressed concern over slumps and construction rates, however, and indicated manufacturing and retail sales have the possibility of going down for his region. If this affected demand for technology, Williams said his region and the local economy would then be highly affected.

Manufacturing and retail sales are strong contributing factors to real GDP. Because the U.S. economy is wavering in these areas, the Federal Reserve System appears to be on the economic spotlight with their decision not only to decrease bond purchases, but raise interest rates on short-term loans. The fate of the U.S. economy appears to be in the hands of the Board of Governors again as they meet this week to decide on the best upcoming policies for the nation.

By Liz Pimentel


Seeking Alpha
FX Street
Huffington Post
Contra Costa Times

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